BIG STORM MAY NOT GO EASY ON CALIFORNIA HOME MARKETS.

Byline: GREGORY J. WILCOX

We might end up calling Hurricane Katrina ``The Big Unexpected.''

When assessing the future direction of prices in this overheated housing market, lots of economists and analysts subscribe to the soft landing theory of appreciation rates narrowing on an annual basis.

Prices won't take a big fall unless there is a severe ``unexpected'' shock that roils the economy.

It may have arrived with those vicious, deadly winds and rains, a fury of nature like no other that blasted The Big Easy and surrounding Gulf Coast area last Monday.

Might they eventually shatter what some say is a sure housing price bubble in many of California's markets, including the Los Angeles area?

``It's kind of too early to tell the full impact of the ramifications,'' said Dennis Meyers, principal economist at the California Department of Finance.

Pain is coming, though, on top of gasoline prices that punched through the $3-a-gallon barrier last week.

--Unemployment along the Gulf Coast is expected to hit 25 percent as hundreds of thousands of people are rendered jobless.

--At week's end, eight refineries and several natural gas processing plants in the region remained out of service. Gasoline production was down 40 million gallons a day.

--The American Farm Bureau estimates that farm-related industries will take a $2 billion hit and that food prices will likely increase.

--A major city and surrounding communities will have to be rebuilt, a task that will sap supplies of building materials.

No one knows how long it will last.

Or what the impact will be on mortgage rates.

Inflation typically brings an increase in long-term rates and the Federal Reserve Board has been nudging up short-term rates since last summer. The latter has made adjustable-rate home loans less of a bargain.

Meyers said the inflation impact will likely chart the Fed's course.

A rising mortgage rate ``is probably the biggest threat to the housing market,'' he said.

``If there are short-term blips (up) and things get back to normal I don't think it will have much of an impact,'' Meyers said of the storm's influence on the state's housing market.

He also notes that the longer the problems linger, the greater the threat.

Robert Kleinhenz, deputy chief economist at the Los Angeles-based California Association of Realtors, said there are several big unknowns.

``We don't know how high some of these prices may go but there is the potential for that to pinch consumer spending there and here in California as well,'' he said. ``That could impose an adverse impact on the housing market.''

The impact the rebuilding effort has on new home construction in the state is also unclear, he said.

Kleinhenz notes that Hurricane Katrina is similar in some ways to the terrorist attacks on New York City and Washington, D.C.

Then the Fed rolled back interest rates to keep the economy from sinking back into recession and it might do so again.

But while 9-11 was a broad blow to the nation's psyche, Hurricane Katrina looks like a body blow to the economy.

And if it spawns an economic storm, we won't be able to head for higher ground.

We'll just have to hunker down and ride it out.

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com